March 7 (Bloomberg) -- The dollar headed for a fourth straight weekly drop against the euro after a government report showed the U.S. unexpectedly lost jobs for a second consecutive month in February.

The U.S. currency fell to the weakest ever against the euro and an eight-year low versus the yen as the report bolstered speculation the Federal Reserve will cut the benchmark interest rate this month for a sixth time since September. The currency recovered from the day's lowest levels as the Fed said it will boost loans to banks this month, leading traders to trim bets on a cut of as much as a full percentage point at the central bank's March 18 policy meeting.

``There is the view that we're quickly sinking into recession and that the Fed only has a limited ability to offset that,'' said Michael Woolfolk, senior currency strategist in New York at the Bank of New York Mellon Corp. ``We will certainly see more dollar weakness from here.''

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The dollar touched $1.5459 per euro, the weakest level since the euro's debut in 1999, before recovering to trade at $1.5364 per euro at 11:26 a.m. in New York from $1.5380 yesterday. The dollar has lost 1.2 percent this week. The U.S. currency traded at 102.64 yen from 102.67 yesterday, after falling to 101.43, the lowest since January 2000.

The U.S. currency also rebounded versus the euro because traders were selling euros to protect options-related positions at the $1.55 level, said Brian Dolan, research director at Forex.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey.

Divergence With Europe

The dollar sank to a historic low against the Swiss franc after the government said the economy lost 63,000 jobs in February, after a drop of 22,000 in January. The median estimate in a Bloomberg survey was for a gain of 23,000 last month.

``It was a very weak report; this is a very bad signal for risk sentiment and will reinforce dollar weakening,'' said Jens Nordvig, a strategist with Goldman Sachs Group Inc. in New York. ``The U.S. economy is deteriorating very, very rapidly while data is holding up reasonably well in Europe; that makes the divergence even more pronounced.''

In a bid to counter a deepening credit crisis, the Fed boosted the size of auctions of four-week funds to banks planned for March 10 and March 24, to $50 billion each from $30 billion previously. The Fed also said it will make $100 billion available through repurchase agreements. The announcement helped the dollar rebound, Ashraf Laidi, a currency analyst at CMC Markets in New York, wrote in a research note.

Three-Quarter Point

Futures show traders see a 94 percent chance the Fed will lower its target rate to 2.25 percent on March 18. The balance of bets is on a cut to 2.5 percent, from 3 percent currently. In early New York trading, traders had started to bet the cut would be as large as a full percentage point on March 18.

The euro briefly pared some gains against the dollar earlier after European Central Bank President Jean-Claude Trichet said he supports the U.S. government's strong-dollar policy.

``Excessive moves are undesirable for growth,'' he said at an event hosted by the French central bank in Paris today. ``I approve the strong dollar policy of authorities'' in the U.S.

The euro surged yesterday after Trichet held rates at a six-year high of 4 percent and said there is ``strong upward pressure on inflation'' in the euro region, suggesting he's in no hurry to cut rates.

Dollar Index Slumps

The euro has gained 17 percent against the dollar in the past year, undermining European exports. The synthetic euro, which estimates the European currency's value before its inception in 1999, advanced to the strongest level since at least January 1989, when Bloomberg's data on the measure began.

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